editione2.1.1Updated September 12, 2022
Because startups are so much smaller than many established companies, and because they may grow quickly, there are additional considerations worth taking into account when negotiating a job offer from a startup:
Cash versus equity. If your risk tolerance is reasonably high, you might ask for an offer with more equity and less cash. If a company begins to do well, it’ll likely “level up” lower salaries (bringing them closer to market average) even if you got more equity up front. On the other hand, if you ask for more cash and less equity, it’s unlikely you’ll be able to negotiate to get more equity later on, since equity is increasingly scarce over time (at least in a successful company!). Entrepreneur and venture capitalist Mark Suster stresses the need to level up by scaling pay and spending, focusing appropriately at each funding stage. In the very early days of a startup, it’s not uncommon for employees to have higher salaries than the company’s founders.*
Title. Negotiating title and exact details of your role early on may not matter as much in a small and growing company, because your role and the roles of others may change a lot, and quickly. It’s more important that you respect the founders and leaders of the company. It’s more important that you feel you are respected.
important It’s important to ask questions when you get an offer that includes any kind of equity. In addition to helping you learn the facts about the equity offer, the process of discussing these details can help you get a sense of the company’s transparency and responsiveness. Here are a few questions you should consider asking, especially if you’re evaluating an offer from a startup or another private company:
What percentage of the company do the shares represent?
What set of shares was used to compute that percentage? Is it outstanding shares or fully diluted?
What convertible securities are outstanding (convertible notes, SAFEs, or warrants), and how much dilution can I expect from their conversion?
What did the last round value the company at? (That is, what is the preferred share price times the total outstanding shares?)
What is the most recent 409A valuation? When was it done, and will it be done again soon?
What exit valuation will need to be achieved before common stock has positive value (that is, what are the liquidation overhangs)?